The UK’s video games industry is booming – it’s time we started to value it
Another piece of UK silver is to be sold to China. Video games developer, Sumo, is being bought by Tencent for £920m.
Sumo specialises in collaborating with other firms to create hit titles – among them Sonic the Hedgehog for Sega, LittleBigPlanet for Sony and Hitman with IO Interactive. The stock market-listed firm employs more than 1,200 people from its base in Sheffield, in the UK, Poland, US, Canada and India. Its Hong Kong-quoted purchaser, Tencent, is one of the biggest companies in the world, worth around $700bn, due to its ownership of the Chinese social media and mobile payments app, Weixin/WeChat.
Tencent is also huge in gaming and e-sports, owning Riot Games, the company behind League of Legends, as well as stakes in the creators of Fortnite and Clash of Clans. So far this year, Tencent has made 10 investments in other games companies worldwide. Sumo is the latest.
Sumo then looks certain to join Britain’s Codemasters, sold to Electronic Arts of the US for £945m in February. It will also take its place in a line-up of Chinese-owned UK assets, that includes Heathrow Airport, Greene King, Hinkley Point C, Northumbrian Water and Superdrug. To them can be added 49 per cent of HSBC, £1bn-plus stakes in Shell, BP, AstraZeneca and Diageo, and holdings in 17 independent schools, Lotus Cars, Barnsley, Wolverhampton Wanderers and Manchester City football clubs, Cineworld and Odeon UCI cinemas, the QHotels group and the Skyscanner travel website. In total, Chinese investors have spent £134bn buying up bits of the UK.
When the Sumo deal was announced, there was outrage in some quarters. The Daily Mail fumed: “Handing it over to China should not be an option. The government cannot stand idly by and let Tencent take control of a critical part of the nation’s future.”
Well, first of all, the vast portfolio of businesses that now have Chinese owners or backers, speaks volumes. It is hard to see why Sumo should be any different. Sumo also becomes a member of that much longer roll-call of British brands that have fallen to foreign buyers, not just Chinese, down the years.
The Daily Mail was right, though, to stress one word: future. While many of the names that have seen their ownership go overseas are so-called historic or “legacy” firms, gaming is a fast-growing, worldwide industry with enormous potential.
It’s also one in which the UK is a world-leader. Some of the most successful global games franchises originated in the UK: Elite, Populous, Tomb Raider, Grand Theft Auto, Fall Guys, Golf Clash, Lemmings, Football Manager, Championship Manager.
While music and film attract all the media headlines along with City and political interest, the gaming market in the UK is the same size as music and film combined, according to the Entertainment Retailers Association. The UK video games industry is the biggest in Europe and fifth largest in the world, behind Japan, South Korea, China and the US. It’s a sector that employs 50,000 people in the UK, more than half of them outside London and the South-East. It’s a creative industry that is already determinedly non-London centric. It’s one, too, that has had an excellent pandemic, booming throughout lockdowns. The stage is set fair for future advancement.
Gaming ticks all the right boxes. In that field, Sumo is a standout player. Yet the company that came calling with the cheque book did not hail from the UK, but from China.
Writing in the Daily Mail, City commentator Alex Brummer said: “We often muse in the UK as to why, with our leading-edge skills in tech, AI and writing code, we lack 21st-century digital champions. Among the reasons is that it is open season for assault on our infant companies. Sumo, with studios across five countries, and responsible for such games as Hotshot Racing, Sackboy and WST Snooker, might not look like a national asset.”
Continued Brummer: “The brainpower behind it, like so much of the gaming industry, is the result of the input from the UK’s universities where creative IT has unsealed gallons of talent, patents galore and IP. Handing it over to China should not be an option. The government cannot stand idly by and let Tencent take control of a critical part of the nation’s future.”
It’s hard to see on what grounds the government can step in, not least when so many of our other assets have previously gone to China. Brummer is absolutely correct, though: we do not possess 21st-century digital champions and when we do appear as though we’re about to get one, they’re snapped up. He’s also right when he says, Sumo “might not look like a national asset.”
It’s this that must shift. Our political and investment establishment have too little understanding where matters IT and digital are concerned. It’s all about geeks, who probably did not go to certain schools or universities, not to be taken seriously. As Prime Minister, Boris Johnson sets the tone. He’s forever donning a yellow hi-vis jacket and driving a fork-lift truck or posing for pictures at a factory, construction site or laboratory. These, to him and his advisors, represent enterprise and wealth and employment generation. AI, robotics, gaming – they’re not real in their eyes. You also know that if he did turn up, he would adopt a somewhat bemused air, managing to belittle an industry that deserves to be taken very seriously indeed.
This is the point. Yes, we can cavil about another name falling to China, but where were the domestic buyers? Sumo is publicly quoted. The board were made an offer at a 43 per cent premium to the then share price. In the absence of any other interest, what board is not going to accept that? Sumo does not just join the list of British businesses that have been sold to foreigners, including the Chinese, but it joins the list of British businesses where British investors failed to step up. In the case of Sumo, which has bright prospects and is a top operator in an industry that is set only to grow bigger, that employs the young and draws upon and hones vital computing skills, it is economically damaging.
Until we start changing our attitude and begin to appreciate the talent we have and how it must be encouraged and nurtured, and in particular, our investor community alters and modernises their ways, we will carry on creating and ultimately losing. Blaming others for having the foresight we lack is not the answer.